Proposal to Increase st-yETH Market Parameters

FiRM
1

Summary

This proposal recommends adjusting the market parameters for st-yETH as follows:

  • Collateral Factor: Increase from 75% to 80%.
  • Daily Borrow Limit: Increase from $200,000 to $500,000.
  • Market Ceiling: Increase from $2,000,000 to $5,000,000.

These changes aim to transition the st-yETH market out of its guarded launch phase, capitalizing on its demonstrated stability and the activation of the Liquidator Grant Program, which now includes this market.

st-yETH Proposal History:

June 26th, 2024 Proposal to increase st-yETH market’s Collateral Factor and Daily Borrow Limit

June 17th, 2024 ALE ERC4626 Integration for sFRAX and st-yETH Markets on FiRM

May 14th, 2024 Proposal to add st-yETH Market to FiRM

Background

The st-yETH market was launched as part of the FiRM platform’s strategy to offer robust lending solutions. Initially deployed with conservative parameters to mitigate early-stage risks, the market has gained operational stability and user confidence. This stability, along with the broader ecosystem growth, provides an opportunity to expand its market parameters to better align with user demand and the platform’s growth objectives.

Additionally, the launch of the Liquidator Grant Program supports more active participation in the liquidation process, ensuring protocol stability even with higher borrowing activity.

Risk Assessment

Expanding the st-yETH market requires careful consideration of:

  1. Collateral Factor:
  • A higher collateral factor (80%) reflects the increased confidence in st-yETH’s underlying liquidity and stability.
  • The yETH/ETH Curve pool has seen roughly a 20% increase in liquidity depth, reducing volatility and supporting higher collateralization without undue risk.
  • Apart from the Curve yETH/ETH liquidity, users and liquidators of the st-yETH market can exit their position through the LST’s that compose the st-yETH product. This allows st-yETH to share these liquidity sources and make for a highly liquid collateral asset.
  • The st-yETH LST Composition (as of November 23, 2024) is summarized in the table below.
LSTs in Pool Amount in Pool Composition
apxETH 699.859333 22.46%
mevETH 587.970069 18.73%
sfrxETH 510.846083 17.08%
swETH 325.697251 10.61%
wstETH 278.718180 9.99%
rETH 293.902227 9.97%
ETHx 188.375734 5.96%
cbETH 158.377040 5.21%
  1. Daily Borrow Limit:
  • The recommended increase to $500,000 reflects growing user demand and ensures the market remains competitive.
  1. Market Ceiling:
  • Raising the ceiling to $5,000,000 aligns with anticipated borrowing growth, providing sufficient room for market expansion while maintaining liquidity security.

The adjustments have been modeled to avoid risks of liquidation cascades, with active liquidator participation remaining a priority for market health.

On-Chain Actions

  • Set Collateral Factor for st-yETH FiRM market to 80%.
  • Set Daily Borrow Limit for st-yETH FiRM market to 500,000 DOLA
  • Set Market Ceiling: for st-yETH FiRM market to 5,000,000 DOLA
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